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Summary
of Contents
STOCK UPDATE
Sun
Pharmaceuticals
Cluster: Ugly
Duckling
Recommendation: Buy
Price target:
Rs1,000
Current market price: Rs914
Impressive
performance continues
Result
highlight
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Sun
Pharmaceuticals' consolidated net sales grew by 29.1% year on year
(yoy) to Rs536.2 crore in Q2FY2007. The strong growth was driven
by an increase of 46.9% in its exports and a 14.6% growth in the
domestic business.
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A sharp spike
in the research and development (R&D) expenses, along with
higher staff costs led to a decline in the company's operating
profit margin (OPM), which contracted by 50 basis points to 31.9%
in Q2FY2007, causing the operating profit (OP) to increase by
27.1% to Rs170.8 crore. Barring the higher R&D costs, the
company's margins actually showed an expansion of 160 basis
points.
-
Sun Pharma's
net profit for Q2FY2007 stood at Rs186.4 crore, up 26.1% yoy. The
growth in the profit was aided by a 1.5-fold increase in the
company's other income to Rs40.2 crore and a deferred tax
write-back of Rs5.4 crore.
-
Between Sun
Pharma and Caraco, the group has 56 abbreviated new drug
applications (ANDAs) pending approvals and 28 products already in
the market. This is one of the strongest product pipelines in the
industry.
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At the current
market price of Rs914, Sun Pharmaceutical is valued at 26.7x
FY2007 and 22.6x FY2008 fully diluted earnings. The company's
future growth prospects, positive contributions from past
acquisitions and value-unlocking post R&D demerger reinforce
our positive stance on the company. We maintain our Buy
recommendation on the stock with a price target of
Rs1,000.
Cipla
Cluster:
Cannonball
Recommendation: Buy
Price target:
Rs300
Current market price: Rs262
Better health
than expected
Result
highlight
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Cipla reported
better-than-expected results for Q2FY2007 with its earnings
showing a 47% jump (as against an expected growth of 40%) to
Rs180.28 crore.
-
The revenues
were up by an impressive 33 % year on year (yoy) and by 4% quarter
on quarter (qoq) to Rs896.11 crore, largely fuelled by a whopping
120% growth in the exports of active pharmaceutical ingredients
(APIs) to Rs159.70 crore and above the industry performance of a
22% increase in the domestic formulations.
-
The operating
profit margin (OPM) witnessed a contraction of 100 basis points to
25.4% in the quarter, as the raw material costs increased by 250
basis points due to the company's changed product mix. However,
the operating profit increased by 28.4% to Rs227.60 crore.
-
With the
reduction in the incidence of tax to 18.3% from 21.1%, possibly
due to the commissioning of the new export-oriented unit (EOU) at
Patalganga, the net profit increased by 47% at Rs180.28
crore.
-
At the current
market price of Rs262, the stock trades at 21.5x its FY2008
earnings, but expecting earning surprises in the subsequent
quarters (as the company is working on about 150 product
projects), we maintain our Buy recommendation on the stock with a
price target of Rs300.
India Cements
Cluster: Ugly
Duckling
Recommendation: Buy
Price target:
Rs315
Current market price: Rs222
Results better
than expected
Result
highlight
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India Cements
(ICL) achieved a net profit of Rs117 crore for Q2FY2007, ahead of
our expectations.
-
The net
revenues grew by a healthy 31.91% to Rs517 crore helped by a 16%
growth in the volumes and a 21% growth in the
realisations.
-
Due to strict
cost control measures, the operating cost growth remained subdued
at 6.3% year on year (yoy). This, coupled with the company's
leverage to the cement prices, resulted in the operating profit
jumping by a whopping 154% to Rs173 crore as against Rs67 crore in
the same quarter last year.
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The operating
margins expanded by a staggering 1,605 basis points to 33.41%
whereas the earnings before interest, tax, depreciation and
amortisation (EBITDA)/tonne more than doubled to Rs791 as against
Rs361 in the same quarter last year.
-
The interest
cost decreased by 8.7% to Rs36 crore on account of the repayment
of debt, whereas the depreciation remained stagnant at Rs19
crore.
-
The tax
provision was negligible at Rs40 lakh on account of the write-off
of the accumulated losses. Thus the net profit grew by a
staggering 1,900% year on year to Rs117
crore.
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